Saturday, August 15, 2015
Well, in a speech last week Fraser spelt it out. But first he noted that the key element of market-oriented reform is that it almost always involves heightening competition. He illustrated the point by summarising what happened during the golden age of micro-economic reform in the 1980s and '90s.
When business speaks of the need for Australian firms to be more competitive, it usually means the government should do something that makes it easier for firms to compete with their foreign rivals.
But this is the opposite of what economists mean when they see heightened competition as the key driver of improved economic performance. They mean Australian firms should be forced to improve their own performance by exposing them to greater competition with other Aussie firms and by making it easier for foreign firms to compete with them.
As Fraser explains, competition is at the heart of how market economies are organised. "Competitive markets generally deliver benefits for all Australians in a way that sheltered markets fail to do so," he says.
"Effective competition in our economy is a key part of its strength and dynamism. Competitive markets benefit consumers by putting downward pressure on prices.
"And over time, competitive pressures drive innovation and investment in new technologies and the development of new products and quality services that meet the needs of consumers. This process of innovation is what drives economic growth and improvements in living standards in the long term."
The modern era of opening Australia to greater pressure from the world economy began when Gough Whitlam cut import tariffs in 1973, he says.
Successive tariff cuts in the '80s and '90s "put Australian manufacturing under increased competitive pressure but, behind the border, changes gave manufacturers flexibility to respond".
Significant among these changes were financial market deregulation and the move to enterprise bargaining, as well as the oft-forgotten reductions to the top personal marginal tax rate from a 60 per cent in 1985-86, to 47 per cent in 1990-91, Fraser says.
The process of reform culminated with the agreement across all levels of government to form the "national competition policy" that began in 1995 and ran through to 2005.
Government businesses were restructured to make them more commercially focused. The electricity, gas, water and rail sectors were transformed.
Legislation was reviewed so it enhanced rather than restricted competition. And a national access regime was established for essential infrastructure. That is, the public or private owners of monopoly networks were obliged to make them available to competitors at reasonable prices.
"Where creativity was once stifled by regulation, competition in product and service markets drove management to change work practices. A liberalised financial sector and a sound macro-economic environment supported strong investment."
Fraser says this era of huge changes offers three lessons on how to get policy reforms accepted.
"First, it was a holistic set of structural reforms. This is important because winners and losers differed and all Australians benefited from at least some of these reforms.
Second, in order to achieve reform we built a political consensus and, more importantly, a community consensus that things had to change and that a delay would make matters worse.
Third, the business community – both large and small – was a big part of this changing culture.
"Managers, no longer distracted by currying [for] government protection, were better able to focus outwards on new markets and inwards on cost savings."
So what's on Treasury's latest reform to-do list? Tax reform, for one. Then there's the financial system. Australia's banking system is relatively concentrated by international standards and the Murray financial system inquiry recommended that regulators increase the emphasis on competition relative to their other objectives.
Then, labour market reform. "I am heartened by Peter Harris and the Productivity Commission's report on workplace relations. Genuine reform ... can be expected to have positive effects on employment and productivity and to reduce business compliance costs."
Next, competition laws. "It is important that firms that have market power are not able to use that position to exclude competitors and potential competitors. This is why we have competition laws."
The review of competition by Professor Ian Harper found that current laws need to be overhauled to make them fit for purpose.
"There remain substantial restrictions on who can supply goods and services, including: professional licensing requirements, liquor and gambling regulation, media and broadcasting restrictions , and the well-known issues of pharmacies and taxis," Fraser says.
"There are restrictions on what can be supplied through product standards, agricultural marketing boards, parallel import restrictions and intellectual property protections. And restrictions on where and when supply can occur: air service agreements, retail trading hours restrictions, and planning and zoning rules."
Fraser concedes that the goal here should not always be deregulation. Regulations are often justified to pursue social goals. "But these goals should be approached through better regulation that doesn't have the side effect of curtailing competition.
"To my mind, foremost among this list, for immediate economic bang for the buck, is planning and zoning."
Planning and zoning systems may create excessive barriers to the entry of new businesses by limiting number and size of outlets and types of business models permissible.
"In other areas, the challenge for governments is not so much to reform regulation as to make way for 'digital disruption'. Uber connects passengers with drivers and AirBnB connects travellers with spaces.
"We should welcome competition here too – governments should not be too quick to assume they will always be better regulators than the private sector."
Clearly, Fraser has an ambitious agenda. It's different to mine, but sometimes my duty is to make sure you know what the econocrats are thinking.